Top 100: Executive compensation at B.C. firms creeping higher

GORDON HAMILTON, Vancouver Sun06.15.2012

Ever wonder just how much the big CEOs of B.C. companies put in their piggy banks each year? Follow along as we break down the 100 highest paid business heads in the province.Getty Creative Images.
/ Getty Creative Images.

For the second time in three years, John Macken, who just stepped down as president of Ivanhoe Mines, is the province’s top earner, bringing in $23.358 million in salary, bonus and options to purchase shares.
Macken was the top earner in 2009, when he took home almost $10 million US.file
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Don Lindsay of Teck Resources Ltd. XXXXXXXHandout
/ Vancouver Sun

Wayne Leidenfrost/PNG Fileswayne leidenfrost
/ PNG

Ian Lindsay/Vancouver Sun Filesian lindsay
/ Vancouver Sun

Jon Feltheimer of Lions Gate Entertainment made $8.036 million.

Christine Day, CEO of Lululemon Athletica, one of only two women to make the top-100 list of B.C. earners last year, placed 36th with $3.575 million.Handout
/ Vancouver Sun

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For the second time in three years, John Macken, who just stepped down as president of Ivanhoe Mines, is the province’s top earner, bringing in $23.358 million in salary, bonus and options to purchase shares.

Macken was the top earner in 2009, when he took home almost $10 million US.

The top three earners in The Vancouver Sun’s 2011 top 100 executive pay summary are all former Ivanhoe executives. Along with Macken, former deputy chairman Peter Meredith ($14.041 million) and former CEO Robert Friedland ($12.574 million) round out the top three. Among them, they earned $50 million.

All three executives, along with former chief financial officer Tony Giardini (No. 11 at $6.598 million), resigned April 17 as part of the realignment of Ivanhoe management with new controlling shareholder Rio Tinto. Rio Tinto became the majority shareholder January 24 when it increased its holdings in Ivanhoe to 51 per cent. Rio Tinto’s interest in Ivanhoe is over Ivanhoe’s Oyu Tolgoi project in Mongolia, reputed to be one of the richest copper/gold properties in the world.

The Top 100 compensation list was compiled by data company Equilar, based in Redwood, Calif., from 346 publicly traded companies with head offices in Vancouver. From the initial list of 346 companies, Equilar looked for executives whose compensation package was $1 million or more. That pared the list down to 2,290 executives from 103 companies. Equilar tracks executive compensation from public documents primarily to assist client companies in benchmarking the amount of compensation executives receive. The data are then used by corporate boards to determine what they want to pay their own executive teams.

Mining companies dominated executive pay in 2011, with eight of the top 10 executive compensation packages being in the mining sector. Only Telus president Darren Entwistle (No. 5 at $10.191 million) and Lions Gate Entertainment CEO Jon Feltheimer (No. 9 at $8.036 million) broke mining’s grip on the top 10. Of the 100 executives in the survey, 64 were from mining companies.

Further, there was no requirement for a company to be profitable for its top executives to bring home hefty pay packages. Six of the top ten earners came from companies that lost money in 2011: Ivanhoe Mines, Levon Resources, Lions Gate Entertainment and Eastern Platinum. Forty of the Top 100 executives on the survey were with companies that lost money.

The capital-intensive nature of mining — high exploration and development costs before the mine come into production — accounts for high compensation packages for executives in mining companies that are losing money.

The top 100 survey also shows that most of the top-paid executives, 98 per cent of them to be exact — are men. Only two women made the list: Lululemon Athletica CEO Christine Day, No. 36 with $3.575 million, and Eldorado Gold administrative vice-president Dawn Moss, No. 80 at $1.995 million.

In 2011, overall executive compensation was on the rise. In 2009, Telus’s Entwistle, for example, earned $6.85 million; in 2010 $9.9 million and $10.191 million in 2011.

In 2011, the threshold to make the top 100 also went up to $1.7 million — the amount earned by No. 100, Sandy Fulton of International Forest Products. In 2010 the threshold was $1.4 million. In 2009 it was $1.2 million.

The method of setting executive compensation is behind the ratcheting up of pay packages year-over-year, said Laura O’Neill, director of law and policy at the Shareholder Association for Research and Education, an advocate of shareholder issues.

Pay is benchmarked by compensation committees looking at the pay of peers, she said.

“Nobody is going to suggest that they have bottom-rung executives,” she said.

“So they will at least go for the middle ground of the peers. So in year one, you target the middle and all the peers target the middle and then the next year the middle is suddenly the bottom.”

It results in “a relentless climb upwards,” she said.

Compensation is also based on performance targets, she said, particularly share-based and option-based awards.

For example, of the $10.191 million Entwistle earned in 2011, most of it, almost $7 million, was share-based awards, a better form of incentive for top executives than options-based awards, which was the standard a decade ago, said O’Neill.

Share-based awards, when they become vested, are an actual share; “skin in the game,” according to O’Neill and a much better incentive than options. Option-based awards are an option to purchase shares once they are vested and are generally exercisable over a long period of time. They can be windfalls, depending on how the stock performs. If the stock falls, they do not need to be exercised. She said they tend to encourage long tenure at a company rather than performance.

But, she said, even through they are not cash in hand, options are real benefits. “The chances are they are going to be worth a pretty penny.”

The salary component of compensation packages is generally smaller than the share and option awards, she said.

“Most companies will say ‘We have a small salary component and most of the pay is incentive pay because we are not paying these people just to show up. We are paying them to really work hard and make this company really do well.’”

O’Neill described option-based awards as “The monster that has been created.”

“It’s up to us to understand it and to try to tame it. One of the ways to do that is to move away from options that simply vest as time goes by and move toward stock-based compensation; real shares, real skin in the game, but you have to meet more hurdles, like total shareholder return, revenue goals, bringing down the operational costs, whatever it might be.”

O’Neill said she would prefer to see compensation also tied to environmental and social accomplishments as well as financial metrics.

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